LPs set ambitious targets for PE

A strong majority of private equity investors are expecting double digit returns over the next three to five years, according to Coller Capital research.

Four out of five LPs expect net private equity returns of 11 percent and more over the next three to five years, finds Coller Capital’s Global Private Equity Barometer. Over one-quarter expect returns in excess of 16 percent in the same period, according to the LP survey. 

That level of optimism will likely prove difficult for a large subset of fund managers, who in more recent years have had difficultly delivering double digit returns. For the period ending 30 June 2012, non-US funds in developed markets have generated a 1.8 percent return over a five year period, according to Cambridge Associates figures released Monday. In emerging markets that figure climbs to 7.8 percent, though still short of most LPs' favoured 11 percent return going forward. 

However when excluding boom-era vintages, Cambridge's non-US developed market index shows a 13.7 percent return over a three year period. For emerging markets that comparable figure is 15.5 percent. Nonetheless, for the third time in the past four quarters the non-US developed market index suffered a drop in performance data as concerns continue over the stability of the eurozone. 

The latest Barometer report also revealed that LPs who have adopted performance-related schemes for their investment staff have outperformed since the financial crisis.

Fifty-five percent of LPs with performance-related pay have netted annual returns greater than 11% over the last five years; less than one-fifth (19 percent) of other LPs respondents achieved the same. The practice is more common in North America, the study found, with 63 percent of respondents noting they had performance-related pay schemes; that compares to 53 percent in Europe and 48 percent in Asia-Pacific.

Nicholas Donato contributed to this report.